A chart by Robert Solow, a senior fellow at the Peterson Institute for International Economics, shows that at the same debt ratio, optimistic expectations correspond to low interest rate spreads and lower interest costs; once investors turn pessimistic, rising interest rate spreads will in turn push up interest payments, worsen the debt path, and ultimately make the original concerns self-fulfilling.
Taking France as an example, its debt rose to 117.5% of GDP in the first quarter; the European Commission projects a deficit of 5.1% in 2026, with the debt ratio exceeding 120% in 2027. Currently, the Franco-German 10-year interest rate spread is around 70-80 basis points, not yet reflecting crisis pricing, but persistent deficits are pushing France to the right side of the chart.
